TIDMAEMC
RNS Number : 3153F
Aberdeen Emerging Markets Inv Co Ld
19 February 2018
ABERDEEN EMERGING MARKETS INVESTMENT COMPANY LIMITED
LEI: 213800RIA1NX8DP4P938
A UK-listed investment company, seeking consistent returns from
a diversified portfolio of emerging market funds
Annual Report and Accounts
FOR THE YEARED 31 OCTOBER 2017
Financial Highlights
Aberdeen Emerging Markets Investment Company Limited ("AEMC" or
the "Company") is a closed-end investment company with its Ordinary
shares listed on the premium segment of the London Stock Exchange.
It offers investors exposure to some of the best investment talent
within the global emerging markets of Asia, Eastern Europe, Africa
and Latin America.
The Company is governed by a board of directors, the majority of
whom are independent, and has no employees. Like most other
investment companies, it outsources its investment management and
administration to an investment management group, Aberdeen Standard
Investments (the investment arm of the Standard Life Aberdeen plc
group of companies).
Net asset value ("NAV") per ordinary
share total return* NAV per ordinary share**
+14.9% 706.0p
2016 +36.4% 2016 618.8p
-------------------------------------- ------- ----------------------------- ------------------
Ordinary share price
Share price total return* - mid market
+17.0% 632.5p
2016 +36.1% 2016 545.0p
-------------------------------------- ------- ----------------------------- ------------------
MSCI Emerging Markets Net Total Return Index
in Sterling terms Net Assets
+16.6% GBP361.5million
2016 +37.7% 2016 GBP320.2million
-------------------------------------- ------- ----------------------------- ------------------
Ongoing charges ratio
Gearing*** ('OCR')
+6.0% +1.07%
2016 nil 2016 1.10%
-------------------------------------- ------- ----------------------------- ------------------
Revenue return per
Dividends per share**** share
10.0p -0.68p
2016 nil 2016 -0.45p
-------------------------------------- ------- ----------------------------- ------------------
*Performance figures stated above include reinvestment of dividends
on the ex-date
**See the Notes to the Financial Statements for basis of calculation
***Based on the net of the drawn down loan value and cash, as
a percentage of NAV
****Dividends declared for the year in which
they were earned
Investment Objective
The Company's investment objective is to achieve consistent
returns for Shareholders in excess of the MSCI Emerging Markets Net
Total Return Index in Sterling terms (the 'Benchmark').
Investment Policy
The Company's investment policy is included in the Annual Report
and Accounts.
Benchmark
MSCI Emerging Markets Net Total Return Index in Sterling
terms.
Management
The Company's Alternative Investment Fund Manager ("AIFM") and
Investment Manager is Aberdeen Fund Managers Limited ("AFML",
"Manager", "Investment Manager" or "AIFM"), a wholly owned
subsidiary of Aberdeen Asset Management PLC (the "Aberdeen Group")
which merged with Standard Life plc on 14 August 2017 to form
Standard Life Aberdeen plc.
The Company's portfolio is managed by Aberdeen's highly
experienced Closed End Fund Opportunities ("CEFO") team, which is
amongst the most experienced of any operating globally with a
similar strategy. Further details of the team and the investment
strategy and process are included in the Annual Report and
Accounts.
Financial Calendar
29 March 2018 First interim dividend payable for year ended 31
October 2018
----------------- -------------------------------------------------
12 April 2018 Annual General Meeting (Guernsey)
----------------- -------------------------------------------------
June 2018 Second interim dividend payable for year ended
31 October 2018
----------------- -------------------------------------------------
June 2018 Announcement of Half-Yearly Financial Report for
the six months ending 30 April 2018
----------------- -------------------------------------------------
September 2018 Third interim dividend payable for year ended 31
October 2018
----------------- -------------------------------------------------
December 2018 Fourth interim dividend payable for year ended
31 October 2018
----------------- -------------------------------------------------
January/February Announcement of Annual Report and Accounts for
2019 the year ending 31 October 2018
----------------- -------------------------------------------------
CHAIRMAN'S STATEMENT
Overview
Over the year to 31 October 2017, the Company's net asset value
("NAV") total return was 14.9% and the share price total return was
17.0% (all in Sterling terms). Over the same period the Company's
benchmark, the MSCI Emerging Markets Net Total Return Index (in
Sterling terms), recorded a total return of 16.6%.
Stock markets fell sharply at the beginning of the financial
year following Donald Trump's victory in the US presidential
election campaign, driven by concerns of protectionist policies and
the implications of a strengthening US Dollar. These fears proved
to be short-lived. Markets recovered quickly and made steady
progress during the rest of the year, benefitting from improving
corporate profitability and increasing inflows from global
investors.
The strongest performing region during the year was Emerging
Asia, in particular China and South Korea. The returns from these
countries were largely driven by the performance of a small number
of technology and internet companies. The portfolio's underweight
exposure to China and the technology sector were the main
detractors from relative performance for the year. However, on the
positive side, there were a number of strong performing holdings in
the portfolio, with many of the closed-end fund holdings
benefitting from narrowing of the discounts to NAV at which their
shares trade.
A more detailed explanation of the year's performance is
provided in the Investment Manager's Report.
The Board is pleased with the progress made by the Company with
regard to revised management arrangements, the diligent
implementation of the investment process and the improved
performance that has resulted. In the three years to 31 October
2017 the Company has:
-- Outperformed its benchmark index, with a NAV total return of
44.2% compared to the 42.3% return from the benchmark index
-- Outperformed its Direct Peer Group* of global emerging market
investment companies with the NAV total return of 44.2% being
comfortably ahead of the peer group average of 33.7%
-- Delivered a share price total return in excess of any of its
Direct Peer Group (share price total return of 45.1% compared to
the Direct Peer Group average of 28.0%)
*The "Direct Peer Group" referred to above includes the Company,
Fundsmith Emerging Equities Trust plc, Genesis Emerging Markets
Fund Limited, JPMorgan Emerging Markets Investment Trust plc,
JPMorgan Global Emerging Markets Income Trust plc and Templeton
Emerging Markets Investment Trust plc. All numbers quoted are in
Sterling terms and sourced from Bloomberg.
The Company's shares ended the year trading on a discount of
10.4%, compared to 11.9% at the beginning of the year. Although the
discount is not out of line with most of the Direct Peer Group, the
Board is cognisant of the discount to the NAV at which the
Company's shares trade, despite the improving trend in performance.
Accordingly, the Board has taken a number of measures with the
objective of fully utilising the benefits of the closed-end
structure whilst also ensuring the Company is made appealing and
accessible to as wide an audience of investors as possible. The
measures adopted are as follows, and are described in more detail
in the paragraphs below.
-- Introduction of a dividend policy
-- Use of gearing through the introduction of a GBP25 million credit facility
-- Reduction in the rate of the basic management fee
-- Removal of performance fee arrangements
-- Use of share buyback powers in accordance with the Company's
stated discount management policy
-- Participation in the Aberdeen Investment Plans and promotional programme
In addition, the Board is today announcing proposals for a
tender offer for up to 10% of the Company's ordinary shares in
issue at a price reflecting a discount of 3.5% to NAV.
Dividends
During the year, the Board announced its intention to commence
making distributions by way of dividends to be funded from a
combination of income and capital. This measure was adopted in the
belief that the level of dividends paid by emerging market
companies over the long term is an increasingly important
attraction for investors seeking to invest in the emerging market
asset class. Consultation with existing and prospective
shareholders on this topic was supportive of this view.
A first interim dividend of 5.0p per share in respect of the
year ended 31 October 2017 was paid on 29 September 2017 and a
second interim dividend of 5.0p per share was paid on 29 December
2017. In respect of future financial years, it is anticipated that
four interim dividends will be paid on a quarterly basis, in March,
June, September and December.
The Board is mindful of the desirability to investors of growth
in the absolute level of the dividend over time. Accordingly, the
Board declares a first interim dividend in respect of the year
ended 31 October 2018 of 5.25p per share and, in the absence of
unforeseen circumstances, anticipates declaring three further
interim dividends of at least 5.25p per share. It is therefore
anticipated that the total dividend for the year will be no less
than 21p per share.
The first interim dividend for the current financial year, of
5.25p per share, will be paid on 29 March 2018 to shareholders on
the register on 2 March 2018.
The Board will put a resolution to shareholders at the Annual
General Meeting in respect of its policy to declare four interim
dividends each year, and will include this as a resolution at
future Annual General Meetings.
The payment of any dividends will be subject to compliance with
all necessary regulatory obligations of the Company, including the
Companies (Guernsey) Law solvency test, compliance with its loan
covenants, and will also be subject to the Company retaining
sufficient cash for its working capital requirements.
Loan Facility and Gearing
During the year the Board was pleased to announce that the
Company had entered into a one year GBP25 million unsecured
multicurrency revolving loan facility. The Board believes that the
use of gearing, which is one of the advantages of a closed ended
structure, within pre-determined ranges and at times when the
Investment Manager sees attractive investment opportunities, will
be beneficial to the longer term performance of the Company. GBP25
million of the facility was drawn down at the year-end,
representing gearing, net of cash, of 6.0%.
The Company has commenced discussions with its bankers and the
Board expects to renew the facility on similar terms when it
matures in March this year.
Management Fee Arrangements
Basic Management Fee
Throughout the year, the management fee payable by the Company
was charged at an annualised rate of 1.0% of adjusted market
capitalisation, reduced by the proportion of its net assets
invested in funds which are managed by Aberdeen Standard
Investments ("Aberdeen Standard Funds").
As referred to above, and previously announced, with effect from
1 November 2017 the annual management fee was decreased to an
annualised rate of 0.8% of net assets, reduced in the same manner
for any investments in Aberdeen Standard Funds. At 31 October 2017,
7.1% of the Company's net assets were invested in Aberdeen Standard
Funds. Based on the value of the Company's net assets at the year
end, it is estimated that the revised fee structure will result in
an annualised management fee of 0.7% of net assets (allowing for
such Aberdeen Standard Funds), compared to an actual rate of 0.8%
of net assets for the year ended 31 October 2017.
The Board believes the revised arrangements represent good value
for shareholders. The revision was considered in the context of the
overall expenses of the Company in absolute terms and relative to
peer group funds.
Performance Fee
Following consideration of fee arrangements and the Company's
level of ongoing charges, the Manager and the Board have agreed
that the performance fee arrangements should be removed, to take
effect from 1 November 2017. The Board believes this change
enhances the attractiveness of the Company to both existing and
potential investors.
Discount and Share Buy Backs
The discount of the share price to NAV at the end of the year
was 10.4%. The Board monitors the discount on an ongoing basis.
During the year, and in accordance with its stated discount
management policy that, in normal market conditions, the shares
should trade at a price which on average represents a discount of
less than 10% to the NAV, the Company bought back 551,450 ordinary
shares to hold in treasury, representing 1.1% of the shares in
issue at the start of the year.
The Board will continue to consider the use of share buybacks
when, in its opinion, and taking into account factors such as
market conditions and the discounts of comparable companies, the
Company's discount is higher than desired and shares are available
to purchase in the market. Shares held in treasury may only be
resold at a price that represents a premium to the prevailing NAV
per share.
Aberdeen Investment Plans
Following the acquisition of the Company's previous investment
manager by Aberdeen Asset Management PLC in December 2015, the
Board agreed that the Company would participate in the investment
plans provided by Aberdeen, which include an Investment Plan for
Children, a Share Plan and an Individual Savings Account ("ISA").
In addition to other promotional activities carried out by the
Company, the Board hopes that this will help to generate additional
demand for the Company's shares. Details are provided on provided
in the Annual Report and Accounts.
Continuation Vote and Tender Offer
Under the terms of the Company's Articles of Incorporation, the
Board is required to propose an ordinary resolution at the
forthcoming Annual General Meeting that the Company continues in
existence (the "Continuation Resolution").
In accordance with the Articles, if the continuation vote is
passed by shareholders then there will be a further continuation
vote in 2023 and at every fifth Annual General Meeting thereafter.
If the continuation vote is not passed then, within four months of
the vote failing, the Directors shall formulate and put to
shareholders proposals relating to the future of the Company having
had regard to, inter alia, prevailing market conditions and
applicable regulations and legislation.
The Board understands that, whilst the large majority of
shareholders by total number of shares held are supportive of the
measures taken to make investment in the Company's shares more
appealing, and of the continuation of the Company, there is
potentially some appetite for liquidity that can be provided by a
tender offer. Accordingly, in conjunction with the Continuation
Resolution, shareholders will also be asked to approve a tender
offer for up to 10% of the Company's ordinary shares in issue at a
price reflecting a discount of 3.5% to NAV. Shares tendered above
the basic entitlement of 10% will be satisfied (on a pro rata
basis) to the extent that other shareholders tender less than their
aggregate basic entitlement.
Assuming it is fully subscribed, the costs of the tender are
anticipated to be more than offset by the uplift in NAV once the
relevant shares have been purchased by the Company.
The record date for participation in the tender will be 20
February 2018 and the Company expects to publish a circular
containing the notice of the Annual General Meeting and the notice
of the Extraordinary General Meeting required to approve the tender
offer in the coming weeks. The resolution to approve the tender
will be conditional on the approval by shareholders of the
Continuation Resolution.
It is expected that the Annual General Meeting and the
Extraordinary General Meeting will both be held on 12 April 2018.
Further details will be included in the circular.
Board Composition
Following the retirements of Terry Mahony and Richard Bonsor
earlier in the year, the Board was pleased to announce the
appointment of Mark Barker as an independent non-executive Director
on 21 July 2017. Mark is Managing Partner of Strategic Capital
Investors, a boutique investment company, and has over thirty years
of investment experience specific to fund of funds. His
understanding of risk, portfolio construction and his success in
building funds in terms of assets and performance will prove very
valuable to Board deliberations.
Manager
The Board notes the recent completion of the merger between
Aberdeen Asset Management PLC ("Aberdeen"), which is the parent
company of the Manager, and Standard Life PLC whereby Aberdeen has
become a wholly owned subsidiary of Standard Life Aberdeen plc. The
Board will continue to monitor developments closely to ensure that
satisfactory arrangements are in place for the continued effective
management of the Company.
Outlook
Strong corporate earnings growth and a marked improvement in
sentiment towards the asset class have supported the significant
gains seen in emerging markets over the past two years. The asset
class has, and continues, to benefit from an improved global
macro-economic environment, with recovering growth combined with
moderate inflation, healthy trade flows and stable currencies. With
emerging market equities trading at reasonable valuations we
believe the prospects remain encouraging and the risks of less
accommodative global monetary policies, ongoing trade negotiations
and a busy political calendar do not undermine the fundamentally
positive case for investing in emerging markets.
As we have stated before, the Board believes that shareholders
benefit from the diversification provided by the Company's approach
of investing through a portfolio of specialist funds run by
talented managers with strong investment propositions. When
combined with the measures adopted during the year as described
above, the Board believes that the Company is an attractive means
for investors to benefit from the long term attractions of emerging
markets.
Mark Hadsley-Chaplin
Chairman
19 February 2018
INVESTMENT MANAGER'S REPORT
During the financial year the Company's net asset value ("NAV")
per ordinary share total return was 14.9%, while the MSCI Emerging
Markets Net Total Return Index (the "Benchmark") gained 16.6%. The
share price total return was 17.0%, with the discount to NAV at
which the Company's shares trade narrowing to 10.4% at year end,
compared with 11.9% at the start of the financial year.
The Company's NAV return trailed the gain seen in the Benchmark
Index by 1.7%. We consider this as a reasonable outcome given the
significant contribution of a small number of large e-commerce,
social networking and technology companies to the benchmark return
over the year. For example, in China, Tencent and Alibaba comprise
32% of the MSCI China Index and were responsible for 46.3% of the
overall index gain, while in Korea and Taiwan, Samsung Electronics
and Taiwan Semiconductor comprise 34% and 32% respectively of the
relevant MSCI indices and contributed 57.1% and 57.4% of the index
gains. Our strategy results in a diversified portfolio that avoids
the kind of stock specific risks presented by concentrated
indices.
As a result of the extremely strong performance of the small
number of companies noted above, the portfolios of certain of the
Company's Asian investments failed to match their benchmarks. These
included, The China Fund Inc, Fidelity China Special Situations
PLC, Weiss Korea Opportunity Fund Limited, Korea Value Strategy
Fund Ltd and Schroder International Selection Taiwanese Equity
Fund. Notwithstanding this, a number of underlying managers
performed admirably, most notably Neuberger Berman - China Equity
Fund (which closed to new money post the year end), Schroder Asia
Pacific Fund PLC, BlackRock Emerging Europe PLC and Russian
specialist Verno Capital Growth Fund Limited.
Discount narrowing in the Company's closed end fund investments
was materially positive during the period. This is consistent with
improving sentiment towards the asset class but was also the result
of pending liquidity events on specific holdings. BlackRock
Emerging Europe PLC's discount narrowed from 11.2% to 5.0%, in part
driven by the fact that it will provide shareholders with an
opportunity to realise the value of their investment in the trust
at NAV less applicable costs in 2018. BlackRock Latin American
Investment Trust PLC's discount narrowed from 13.8% to 9.5% and The
China Fund Inc saw its discount narrow from 13.8% to 9.5%.
A negative contribution from Asset Allocation was driven by an
underweight exposure to China, where those same internet related
stocks drove the overall market returns. China now accounts for
29.7% of the emerging market index and was the best performing of
the major emerging markets over the course of the financial year,
gaining 30.0%. The Company's overweight position in Russia was also
a detractor. Positive contributions came from the decisions to run
underweight allocations to Brazil, South Africa and Qatar.
NAV performance attribution for the year ended 31 October
2017
Fund Selection (1.6%)
------------------------------------ -------
Asia (2.3%)
EMEA 0.5%
Latin America 0.2%
------------------------------------ -------
Asset Allocation (0.9%)
------------------------------------ -------
Asia (0.8%)
EMEA (0.3%)
Latin America 0.2%
Cash (direct and underlying) 0.0%
------------------------------------ -------
Discount Narrowing 1.6%
------------------------------------ -------
Fees and Expenses (0.8%)
------------------------------------ -------
Net asset value under performance* (1.7%)
------------------------------------ -------
* The above analysis has been prepared
on a total return basis.
Market environment
The financial year proved rewarding for emerging market
investors. The surge in the dollar and bond yields following the US
presidential election proved short-lived, with concerns related to
protectionist and anti-immigration policies receding rapidly. The
rally was supported by generally buoyant economic growth and
currency stability in emerging markets combined with an improving
trend in corporate earnings. Presented with such a positive
backdrop, global investors returned to the asset class in force.
The 17.0% share price return of the Company represents material
outperformance of developed markets (MSCI World Index +13.1%).
In a regional context, Emerging Asia was the best performing
area, gaining 16.6% with all the larger markets in the region
posting double digit gains. Chinese equities rose by 30.0% with
sentiment towards the market supported by index provider MSCI's
announcement that domestic Chinese stocks would be included in its
China index in mid-2018. The final month of the financial year saw
President Xi Jinping set out a vision for his second term at the
19th Communist Party Congress and local equities reacted
positively. South Korean stocks posted a gain of 29.4% as the
performance of Samsung Electronics propelled the market higher
despite tensions over North Korean missile tests. The country saw
the election of Moon Jae-in as South Korean president in early May
which was well received. South Korea's relations with China
improved towards the end of the period after the resolution of
differences over the deployment of the US THAAD anti-missile
system. The Taiwanese market returned 15.9% with Taiwan
Semiconductor leading the way. The Indian market gained 13.6%,
recovering strongly after the unexpected removal of large
denomination notes from circulation in late 2016 and the
implementation of the Goods and Services Tax over the summer. The
final month of the period saw the announcement of a significant
recapitalisation plan for state controlled banks and news of a
major transport infrastructure initiative. Pakistan entered the
emerging market index at the start of June and declined 19.6% over
the remainder of the period as the anticipated inflows from global
investors failed to materialise, political uncertainties saw
President Sharif removed from office in July and investors began to
question the stability of the Pakistani Rupee. South East Asian
markets also fared poorly with Malaysia, Indonesia and the
Philippines all declining.
The Emerging Europe, Middle East and Africa index returned 5.8%.
The Russian market rose by 7.5% moving in lockstep with oil prices
for much of the year. Polish and Hungarian equities fared well,
posting gains of 39.3% and 29.8% respectively as economic activity
strengthened and both markets saw strong flows into blue-chip
stocks. The Egyptian market declined 31.0%, a consequence of the
devaluation of the Egyptian pound at the beginning of the period.
The South African market gained 2.6% which was driven by a 34.5%
gain in Naspers, which accounts for around one third of the local
index and whose underlying value driver is its investment in
Chinese internet stock Tencent. The remainder of the South African
market remained challenged as ongoing political turbulence and a
weak economic backdrop contributed to poor investor sentiment.
Qatar (-21.5%) made headlines as a political rift developed over
the summer between it and a number of Arab states, led by Saudi
Arabia. In Turkey (+6.4%) the most notable development was
President Erdogan winning sweeping new powers following a
constitutional referendum in April.
The Latin American regional index rose by 1.5%. Mexican equities
lost 5.6% as the Mexican peso bore the brunt of swings in
sentiment, most notably in the immediate aftermath of the US
presidential election and again towards the end of the period with
increasing uncertainty surrounding the North American Free Trade
Agreement renegotiation process. The region's other major market,
Brazil, gained 1.1%, with politics returning to the fore as
corruption allegations emerged over the summer against President
Temer which will likely delay the reform process.
Portfolio
At the end of the period, the portfolio comprised 34 positions
with the top 10 accounting for 57.3% of net assets. During the
period a GBP25 million gearing facility was introduced and
deployed, making the portfolio fully invested, even when accounting
for look through cash in underlying investments. The facility
benefitted performance over the period it was in place.
The investment of the gearing facility combined with a general
trend towards reflecting greater conviction in the portfolio
resulted in an increase in exposure to open ended funds, where we
benefit from superior liquidity and a greater universe of managers
from which to choose. The balance between closed and open ended
exposure will vary over time, dependent on a broad range of
factors.
The average discount on the closed end portion of the portfolio
at the end of the period was 10.7%, marginally narrower than the
11.5% at the start. The overall composition of the portfolio by
type of vehicle is shown below.
31 October 2017 31 October
2016
--------------------------- ---------------- -----------
Closed end investment
funds 54.3% 60.7%
--------------------------- ---------------- -----------
Open ended investment
funds 47.2% 36.4%
--------------------------- ---------------- -----------
Market access products 4.5% 2.5%
--------------------------- ---------------- -----------
Cash and other net assets -6.0% 0.4%
--------------------------- ---------------- -----------
The most significant new addition during the year was the
initiation of a holding in Laurium Capital International Cayman
Feeder SP ('Laurium Limpopo Fund'), an Africa ex-South Africa
focused vehicle run by Laurium Capital, a Johannesburg-based
investment manager. We had researched the Laurium team for a number
of years and followed the evolution of this vehicle. We selected
the fund for its opportunistic and value driven approach to
investing in markets that include Egypt, Kenya, Nigeria and
Morocco. At the time of investment in August, Africa was firmly out
of fashion. The travails of the last few years (commodity price
declines, currency devaluations, fund outflows and closures) had,
once again, convinced investors that Africa is not a compelling
investment destination. We are attracted by this negativity, which
is reflected in depressed valuations and undervalued currencies.
The pricing of African assets is often inefficient and we believe
Laurium Capital to be an excellent partner through which to access
these inefficiencies and the long term growth potential of the
continent. Laurium Limpopo Fund accounted for 2.8% of net assets at
the year end.
Elsewhere in the portfolio we continued to add to existing
"best-of-breed" open ended positions in favoured parts of the
world, including Findlay Park Latin American Fund ('Findlay Park'),
Avaron Emerging Europe Fund and Neuberger Berman-China Equity Fund
('Neuberger'). Neuberger announced in November 2017 the closure of
this strategy to new investors. We view such a decision favourably
as it indicates the manager's discipline in maintaining performance
as opposed to growing assets under management. In a similar vein,
Ton Poh Tailand Fund, the Company's core holding in Thailand and
the Mekong delta region also closed at the end of 2017 for similar
reasons. In the closed end fund space we purchased additional
shares in the deeply discounted Romanian fund, Fondul Proprietatea
('Fondul'). Despite political volatility in Romania, the economy
continues to perform well, benefitting from its proximity to the
Eurozone, and Fondul continues to rotate its portfolio and return
capital to shareholders.
The Company's geographic allocation is shown on Annual Report
and Accounts. The deployment of the gearing facility saw the
Company move from being 96.3% invested at the end of the previous
financial year to 103.8% at the end of this year. The most
significant country level change in the portfolio was in China,
where exposure increased by 5.1% to reach 25.7% of net assets at
year end. Indian exposure was reduced from 8.3% to 4.9% over the
period as marginal holdings were sold consistent with our declining
conviction in the top down case for India. The Europe, Middle East
and Africa region increased by 3.4% to 24.3%, as a consequence of
the purchases noted above. Latin America benefitted from additional
purchases of Findlay Park Latin American Fund which led to the
overall regional allocation reaching 14.0%. In addition to boosting
the weights of Brazil and Mexico, Findlay Park provides access to a
number of interesting Andean opportunities in markets such as
Colombia and Peru. The Company's exposure to frontier markets
increased over the period to 8.0% of net assets. We believe many
frontier markets offer compelling valuations as they remain
overlooked by mainstream emerging market investors.
Market outlook
From emerging markets' low point in February 2016 to the end of
the current financial year the Company has delivered a share price
total return of 74.9%. This reflects a marked improvement in the
fundamental outlook for emerging markets combined with a turnaround
in investor sentiment, as reflected by significant inflows in 2017.
After such a rally, the question facing investors is whether this
positive momentum can continue through 2018. We believe it can
continue and anticipate that as the rally matures, narrow market
leadership will broaden out which should play to the strengths of
the Company's more value-focused approach.
Emerging economies are benefitting from an improved global macro
environment, with recovering growth supported by moderate inflation
and healthy trade flows allowing current account positions to
improve. This is, in turn, supportive of emerging market
currencies, which were, in aggregate, flat in USD terms over the
period as measured by the JPM Emerging Market Currency Index. The
underlying companies to which the Company is exposed are, on the
whole, in robust shape, with top line revenue growth and increasing
margins feeding through to earnings, returns on equity and
healthier balance sheets. We expect the on-going broad-based
economic and earnings recovery being experienced across our
investment universe to continue through 2018 and we take comfort
from the attractive relative valuation of emerging market equities
despite their strong performance since 2016.
Major central banks are embarking on a path towards policy
normalisation with interest rates expected to rise and central bank
balance sheets to shrink over the coming years. While monetary
tightening has historically been perceived as a negative for
emerging markets, we believe the process will be very gradual and
should not disrupt sentiment. Geo-politics will most likely
continue to cause occasional market panics but in our experience
these bouts of risk aversion are generally short lived and the
worst case scenarios seldom materialise. Such was the case
following North Korea's missile and nuclear tests in 2017 and the
protectionist scare following President Trump's election victory in
late 2016. Observers also point to risks emanating from China as a
country and economy of ever increasing scale and importance. We
believe that President Xi's consolidation of power at the recent
party congress should facilitate a continuation of the reform
process already embarked upon. We believe that debt levels in
China, particularly at the corporate (in-particular state
controlled corporate) level remains worrying but are manageable
within the confines of a largely closed capital account. On
balance, we believe that the risks discussed above should not be
ignored but they do not undermine the fundamentally positive case
for investing in emerging markets and we would not be surprised to
see global allocators increase their allocations to the asset class
further during 2018.
Within the portfolio, we believe the underlying managers with
whom the Company is invested are strong, and we are encouraged by
the sensible steps being taken by certains funds to limit further
inflows. We continue to run a concentrated portfolio of well
structured funds managed by talented stock pickers in those markets
that our top-down analysis indicates to be attractive. We believe
this simple strategy, executed well, will deliver attractive risk
adjusted returns for investors over the coming years as it has done
over recent financial years.
Aberdeen Fund Managers Limited
19 February 2018
PRINCIPAL RISKS AND UNCERTAINTIES
Together with the issues discussed in the Chairman's Statement
and the Investment Manager's Report, the Board considers that the
main risks and uncertainties faced by the Company fall into the
following categories:
(i) General market risks associated with the Company's
investments
Changes in economic conditions, interest rates, foreign exchange
rates and inflationary pressures, industry conditions, competition,
political and diplomatic events, tax, environmental and other laws
and other factors can substantially and either adversely or
favourably affect the value of the securities in which the Company
invests and, therefore, the Company's performance and
prospects.
The Company's investments are subject to normal market
fluctuations and the risks inherent in the purchase, holding or
selling of securities, and there can be no assurance that
appreciation in the value of those investments will occur. There
can be no guarantee that any realisation of an investment will be
on a basis which necessarily reflects the Company's valuation of
that investment for the purposes of calculating the net asset
value.
The Company's investments, although not made into developed
economies, are not entirely sheltered from the negative impact of
economic slowdowns, decreasing consumer demands and credit
shortages in such developed economies which, amongst other things,
affects the demand for the products and services offered by the
companies in which the Company directly or indirectly invests.
A proportion of the Company's portfolio may be held in cash or
cash equivalent investments from time to time. Such proportion of
the Company's assets will be out of the market and will not benefit
from positive stock market movements, but may give some protection
against negative stock market movements.
(ii) Developing markets
The funds selected by the Investment Manager invest in
developing markets. Investing in developing markets involves
certain risks and special considerations not typically associated
with investing in other more established economies or securities
markets. In particular there may be: (a) the risk of
nationalisation or expropriation of assets or confiscatory
taxation; (b) social, economic and political uncertainty including
war and revolution; (c) dependence on exports and the corresponding
importance of international trade and commodities prices; (d) less
liquidity of securities markets; (e) currency exchange rate
fluctuations; (f) potentially higher rates of inflation (including
hyper-inflation); (g) controls on foreign investment and
limitations on repatriation of invested capital and a fund
manager's ability to exchange local currencies for pounds Sterling;
(h) a higher degree of governmental involvement and control over
the economies; (i) government decisions to discontinue support for
economic reform programmes and imposition of centrally planned
economies; (j) differences in auditing and financial reporting
standards which may result in the unavailability of material
information about economies and issuers; (k) less extensive
regulatory oversight of securities
markets; (l) longer settlement periods for securities
transactions; (m) less stringent laws regarding the fiduciary
duties of officers and directors and protection of investors; and
(n) certain consequences regarding the maintenance of portfolio
securities and cash with sub-custodians and securities depositories
in developing markets.
(iii) Other portfolio specific risks
(a) Small cap stocks
The underlying investee funds selected by the Investment Manager
may have significant investments in smaller to medium sized
companies of a less seasoned nature whose securities are traded in
an "over-the-counter" market. These "secondary" securities often
involve significantly greater risks than the securities of larger,
better-known companies, due to shorter operating histories,
potentially lower credit ratings and, if they are not listed
companies, a potential lack of liquidity in their securities. As a
result of lower liquidity and greater share price volatility of
these "secondary" securities, there may be a disproportionate
effect on the value of the investee funds and, indirectly, on the
value of the Company's portfolio.
(b) Liquidity of the portfolio
The fact that a share is traded does not guarantee its liquidity
and the Company's investments may be less liquid than other listed
and publicly traded securities. The Company may invest in
securities that are not readily tradable or may accumulate
investment positions that represent a significant multiple of the
normal trading volumes of an investment, which may make it
difficult for the Company to sell its investments. Investors should
not expect that the Company will necessarily be able to realise its
investments, within a period which they would otherwise regard as
reasonable, and any such realisations that may be achieved may be
at a considerably lower price than prevailing indicative market
prices. The Company has an overdraft facility in place which may be
utilised to assist in the management of liquidity. The borrowing
facility is described in the Directors' Report in the Annual Report
and Accounts.
Liquidity of the portfolio is further discussed in the notes to
the financial statements in the Annual Report and Accounts.
(c) Foreign exchange risks
It is not the Company's present policy to engage in currency
hedging. Accordingly, the movement of exchange rates between
Sterling and the other currencies in which the Company's
investments are denominated or its borrowings are drawn down may
have a material effect, unfavourable or favourable, on the returns
otherwise experienced on the investments made by the Company.
Movements in the foreign exchange rate between Sterling and the
currency applicable to a particular shareholder may have an impact
upon that shareholder's returns in their own currency of
account.
Management or mitigation of the above risks
Risk Management or mitigation of risk
------------------------------- ------------------------------------------
General market risks These risks are largely a consequence
associated with the Company's of the Company's investment strategy
investments but the Investment Manager attempts
to mitigate such risks by maintaining
an appropriately diversified portfolio
by number of holdings, fund structure,
geographic focus, investment style and
market capitalisation focus.
Liquidity, risk and exposure measures
are produced on a monthly basis by the
Investment Manager and monitored against
internal limits.
------------------------------- ------------------------------------------
Developing markets
------------------------------- ------------------------------------------
Other portfolio specific
risks
(a) Small cap stock
(b) Liquidity of the
portfolio
(c) Foreign exchange
------------------------------- ------------------------------------------
The investment management of the Company has been delegated to
the Company's Investment Manager. The Investment Manager's
investment process takes into account the material risks associated
with the Company's portfolio and the markets and holdings in which
the Company is invested. The Board monitors the portfolio and the
performance of the Investment Manager at regular Board
meetings.
(iv) Internal risks
Poor allocation of the Company's assets to both markets and
investee funds by the Investment Manager, poor governance,
compliance or administration, could result in shareholders not
making acceptable returns on their investment in the Company.
Management or mitigation of internal risks
The Board monitors the performance of the Investment Manager and
the other key service providers at regular Board meetings. The
Investment Manager provides reports to the Board on compliance
matters and the Administrator provides reports to the Board on
compliance and other administrative matters. The Board has
established various committees to ensure that relevant governance
matters are addressed by the Board.
The management or mitigation of internal risks is described in
detail in the Corporate Governance Statement in the Annual Report
and Accounts.
Statement of directors' responsibilities in respect of the
Annual Report and ACCOUNTS
The directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Guernsey company law requires the directors to prepare financial
statements for each financial period. The directors have elected to
prepare the financial statements in accordance with International
Financial Reporting Standards as issued by the IASB and applicable
law.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these financial statements, the
directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
Disclosure of information to auditor
The directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware; and each director has taken all the steps that
they ought to have taken as a director to make themselves aware of
any relevant audit information and to establish that the Company's
auditor is aware of that information.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website, but not for the content of any information
included on the website that has been prepared or issued by third
parties. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- the directors' report includes a fair review of the
development and performance of the business and the position of the
issuer, together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
Helen Green
Director
William Collins
Director
19 February 2018
STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 October Year ended 31 October
2017 2016
------------------------------------------------- ---------------------------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Gains on
investments
at fair value
through
profit or
loss - 46,978 46,978 - 85,180 85,180
Gains on
currency
movements - 96 96 - 654 654
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Net investment
gains - 47,074 47,074 - 85,834 85,834
Investment
income 3,500 - 3,500 2,792 - 2,792
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
3,500 47,074 50,574 2,792 85,834 88,626
Investment
management
fees (2,695) - (2,695) (2,107) - (2,107)
Other expenses (857) - (857) (736) - (736)
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Operating
profit before
finance costs
and taxation (52) 47,074 47,022 (51) 85,834 85,783
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Finance costs (155) - (155) (46) - (46)
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Operating
profit before
taxation (207) 47,074 46,867 (97) 85,834 85,737
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Withholding
tax expense (141) - (141) (136) - (136)
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Total profit
and
comprehensive
income for
the year (348) 47,074 46,726 (233) 85,834 85,601
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
Earnings per
ordinary
share (0.68p) 91.68p 91.00p (0.45p) 165.37p 164.92p
--------------- --------------------- --------------- --------- --------------------- ----------------- ---------
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared under IFRS. The revenue
and capital columns, including the revenue and capital earnings per
share data, are supplementary information prepared under guidance
published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
The notes form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at As at
31 October 2017 31 October 2016
GBP'000 GBP'000
--------------------------------- ----------------- -----------------
Non-current assets
Investments at fair value
through profit or loss 383,263 318,713
--------------------------------- ----------------- -----------------
Current assets
Cash and cash equivalents 3,414 2,110
Sales for future settlement - 1,526
Other receivables 186 272
3,600 3,908
--------------------------------- ----------------- -----------------
Total assets 386,863 322,621
--------------------------------- ----------------- -----------------
Current liabilities
Interest payable 35 -
Purchases for future settlement - 2,027
Other payables 357 379
Loans payable 25,000 -
Total liabilities 25,392 2,406
--------------------------------- ----------------- -----------------
Net assets 361,471 320,215
--------------------------------- ----------------- -----------------
Equity
Share capital 183,930 186,840
Capital reserve 184,593 140,079
Revenue reserve (7,052) (6,704)
Total equity 361,471 320,215
--------------------------------- ----------------- -----------------
Net assets per ordinary
share 706.04p 618.79p
--------------------------------- ----------------- -----------------
Number of ordinary shares
in issue (excluding shares
held in treasury) 51,196,729 51,748,179
--------------------------------- ----------------- -----------------
Approved by the Board of Directors and authorised for issue on
19 February 2018 and signed on its behalf by:
Helen Green - Director
William Collins - Director
The notes form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
Share Capital Revenue
For the year ended 31 October capital reserve reserve Total
2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- --------- ---------
Balance at 1 November 2016 186,840 140,079 (6,704) 320,215
Profit/(loss) for the year - 47,074 (348) 46,726
Dividends paid - (2,560) - (2,560)
Share buybacks (2,910) - - (2,910)
Balance at 31 October 2017 183,930 184,593 (7,052) 361,471
------------------------------- --------- --------- --------- ---------
Share Capital Revenue
For the year ended 31 October capital reserve reserve Total
2016 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- --------- ---------
Balance at 1 November 2015 187,725 54,245 (6,471) 235,499
Profit/(loss) for the year - 85,834 (233) 85,601
Share buybacks (885) - - (885)
Balance at 31 October 2016 186,840 140,079 (6,704) 320,215
------------------------------- --------- --------- --------- ---------
The notes form part of these financial statements.
STATEMENT OF CASH FLOW
Year ended Year ended
31 October 31 October
2017 2016
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Cash flows from operating activities
Cash inflow from investment
income and bank interest 3,544 2,642
Cash outflow from management
expenses (3,522) (2,685)
Cash inflow from disposal of
investments* 75,404 90,430
Cash outflow from purchase of
investments* (93,478) (89,591)
Cash outflow from taxation (141) (136)
Net cash flow (used in)/from
operating activities (18,193) 660
-------------------------------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank borrowings 25,000 -
Borrowing commitment fee and
interest charges (155) (46)
Dividend paid (2,560) -
Share buy backs (2,910) (885)
Net cash flow from/(used in)
financing activities 19,375 (931)
-------------------------------------- ------------ ------------
Net increase/(decrease) in cash
and cash equivalents 1,182 (271)
-------------------------------------- ------------ ------------
Effect of foreign exchange 122 385
Cash and cash equivalents at
1 November 2,110 1,996
Cash and cash equivalents at
31 October 3,414 2,110
-------------------------------------- ------------ ------------
The notes form part of these financial statements.
*Receipts from the disposal and purchase of investments have
been classified as components of cash flows from operating
activities because they form part of the Company's operating
activities.
NOTES
For the year ended 31 October 2017
1. REPORTING ENTITY
Aberdeen Emerging Markets Investment Company Limited (the
"Company") is a closed-ended investment company, registered in
Guernsey on 16 September 2009. The Company's registered office is
11 New Street, St Peter Port, Guernsey, GY1 2PF. The Company's
shares have a premium listing on the London Stock Exchange and
commenced trading on 10 November 2009. The Company changed its name
to Aberdeen Emerging Markets Investment Company Limited on 14 April
2016. The financial statements of the Company are presented for the
year ended 31 October 2017.
The Company invests in a portfolio of funds and products which
give diversified exposure to developing and emerging markets
economies with the objective of achieving consistent returns for
shareholders in excess of the MSCI Emerging Markets Net Total
Return Index in Sterling terms.
Investment Manager
The investment activities of the Company were managed by
Aberdeen Fund Managers Limited ('AFML') during the year ended 31
October 2017.
Non-mainstream pooled investments ("NMPIs")
The Company currently conducts its affairs so that the shares
issued by the Company can be recommended by Independent Financial
Advisers to ordinary retail investors in accordance with the
Financial Conduct Authority's rules in relation to NMPIs and
intends to continue to do so for the foreseeable future.
2. BASIS OF PREPARATION
(a) Statement of compliance
The financial statements, which give a true and fair view, have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") and are in compliance with The Companies
(Guernsey) Law, 2008. There were no changes in the accounting
policies of the Company in the year to 31 October 2017.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for Investment Companies issued by
the Association of Investment Companies ("AIC") in November 2014
and updated in January 2017 is consistent with the requirements of
IFRS, the directors have sought to prepare the financial statements
on a basis compliant with the recommendations of the SORP.
The total column of the Statement of Comprehensive Income is the
profit or loss account of the Company. The "Capital" and "Revenue"
columns provide supplementary information.
The financial statements were approved and authorised for issue
by the Board on 19 February 2018.
This report will be sent to shareholders and copies will be made
available to the public at the Company's registered office. It will
also be made available on the Company's website:
aberdeenemergingmarkets.co.uk
(b) Going concern
The directors have adopted the going concern basis in preparing
the financial statements. The Board formally considered the
Company's going concern status at the time of the publication of
these financial statements and a summary of the assessment is
provided below.
The Company will put forward a resolution for its continuation
at the Annual General Meeting on 12 April 2018. Following
consultations with shareholders the directors have a reasonable
expectation that the continuation vote will be passed. The
financial statements have therefore been prepared on the basis that
the continuation vote will be passed by shareholders. If the
resolution is not passed, then within four months of the vote to
continue failing the directors will be required to formulate and
put to shareholders proposals relating to the future of Company,
having had regard to, inter alia, prevailing market conditions and
the applicable regulations and legislation.
The directors have a reasonable expectation that the
continuation vote will be passed and that the Company has adequate
operational resources to continue in operational existence for at
least twelve months from the date of approval of this document. In
reaching this conclusion, the directors have considered the
liquidity of the Company's portfolio of investments as well as its
cash position, income and expense flows. As at 31 October 2017, the
Company held GBP3.4 million in cash and GBP383.3 million in
investments. It is estimated that approximately 60% of the
investments held at the year end could be realised in one month.
The total operating expenses for the year ended 31 October 2017
were GBP3.6 million, which represented approximately 1.07% of
average net assets during the year. At the date of approval of this
document, based on the aggregate of investments and cash held, the
Company has substantial operating expenses cover.
The Company has a GBP25 million loan facility with RBS which
matures on 31 March 2018. The Company has commenced discussions
with RBS and the Board expects to renew the facility on similar
terms when it matures.
The directors are satisfied that it is appropriate to adopt the
going concern basis in preparing the financial statements and,
after due consideration, the directors consider that the Company is
able to continue for a period of at least twelve months from the
date of approval of the financial statements.
(c) Basis of measurement
The financial statements have been prepared on the historical
cost basis except for investments held through profit or loss which
are measured at fair value.
(d) Functional and presentation currency
The Company's investments are denominated in multiple
currencies. However, the Company's shares are issued in GBP
sterling and the majority of its investors are UK based. Therefore,
the financial statements are presented in Sterling, which is the
Company's functional currency. All financial information presented
in GBP sterling has been rounded to the nearest thousand
pounds.
(e) Capital reserve
Profits achieved by selling investments and changes in fair
value arising upon the revaluation of investments that remain in
the portfolio are all charged to profit or loss in the capital
column of the Statement of Comprehensive Income and allocated to
the capital reserve.
(f) Revenue reserve
The balance of all items allocated to the revenue column of the
Statement of Comprehensive Income in each year is transferred to
the Company's revenue reserve.
(g) Use of estimates, assumptions and judgements
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Use of estimates and assumptions
Estimates and underlying assumptions are reviewed on an on-going
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Information about significant areas of estimation uncertainty
and critical judgements in applying accounting policies that have
the most significant effect on the amounts recognised in the
financial statements are described below.
Classification and valuation of investments
Investments are designated as fair value through profit or loss
on initial recognition and are subsequently measured at fair value.
The valuation of such investments requires estimates and
assumptions made by the management of the Company depending on the
nature of the investments as described in note 3 (a) and fair value
may not represent actual realisable value for those
investments.
Allocation of investments to fair value hierarchy
IFRS 13 requires the Company to measure fair value using the
following fair value hierarchy that reflects the significance of
the inputs used in making the measurements. IFRS 13 establishes a
fair value hierarchy that prioritises the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The
three levels of fair value hierarchy under IFRS 13 are as
follows:
Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 - inputs other than quoted prices included within level
1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices);
and
Level 3 - inputs for the asset or liability that are not based
on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
Use of judgements
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary and provided by independent sources that are actively
involved in the relevant market.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Investments
As the Company's business is investing in financial assets with
a view to profiting from their total return in the form of
increases in fair value, financial assets are designated as fair
value through profit or loss on initial recognition. These
investments are recognised on the trade date of their acquisition
at which the Company becomes a party to the contractual provisions
of the instrument. At this time, the best evidence of the fair
value of the financial assets is the transaction price. Transaction
costs that are directly attributable to the acquisition or issue of
the financial assets are charged to profit or loss in the Statement
of Comprehensive Income as a capital item. Subsequent to initial
recognition, investments designated as fair value through profit or
loss are measured at fair value with changes in their fair value
recognised in profit or loss in the Statement of Comprehensive
Income and determined by reference to:
i) investments quoted or dealt on recognised stock exchanges in
an active market are valued by reference to their market bid
prices;
ii) investments other than those in i) above which are dealt on
a trading facility in an active market are valued by reference to
broker bid price quotations, if available, for those
investments;
iii) investments in underlying funds, which are not quoted or
dealt on a recognised stock exchange or other trading facility or
in an active market, are valued at the net asset values provided by
such entities or their administrators. These values may be
unaudited or may themselves be estimates and may not be produced in
a timely manner. If such information is not provided, or is
insufficiently timely, the Investment Manager uses appropriate
valuation techniques to estimate the value of investments. In
determining fair value of such investments, the Investment Manager
takes into consideration the relevant issues, which may include the
impact of suspension, redemptions, liquidation proceedings and
other significant factors. Any such valuations are assessed and
approved by the directors. The estimates may differ from actual
realisable values;
iv) investments which are in liquidation are valued at the
estimate of their remaining realisable value; and
v) any other investments are valued at the directors' best
estimate of fair value.
Transfers between levels of the fair value hierarchy are
recognised as at the end of the reporting period during which the
change has occurred.
Investments are derecognised on the trade date of their
disposal, which is the point where the Company transfers
substantially all the risks and rewards of the ownership of the
financial asset. Gains or losses are recognised in profit or loss
in the capital column of the Statement of Comprehensive Income. The
Company uses the weighted average cost method to determine realised
gains and losses on disposal of investments.
(b) Foreign currency
Transactions in foreign currencies are translated into Sterling
at the exchange rate at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are retranslated into Sterling at the spot exchange
rate at that date. Non-monetary assets and liabilities denominated
in foreign currencies that are measured at fair value through
profit or loss are retranslated into Sterling at the exchange rate
at the date that the fair value was determined. Non-monetary assets
and liabilities that are measured in terms of historical cost in a
foreign currency are translated into Sterling using the exchange
rate at the date of the transaction.
Foreign currency differences arising on retranslation are
recognised in profit or loss and, depending on the nature of the
gain or loss, are allocated to the revenue or capital column of the
Statement of Comprehensive Income. Foreign currency differences on
retranslation of financial instruments designated as fair value
through profit or loss are shown in the "Gains on currency
movements" line.
(c) Income from investments
Dividend income is recognised when the right to receive it is
established and is reflected in the Statement of Comprehensive
Income as Investment Income in the revenue column. For quoted
equity securities this is usually on the basis of ex-dividend
dates. For unquoted investments this is usually on the entitlement
date confirmed by the relevant holding. Income from bonds is
accounted for using the effective interest method.
Special dividends and distributions described as capital
distributions are assessed on their individual merits and may be
credited to the capital reserve if considered to be closely linked
to reconstructions of the investee company or other capital
transactions. Bank interest receivable is accounted for on a time
apportionment basis and is based on the prevailing variable
interest rates for the Company's bank accounts.
(d) Treasury shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from equity shareholders' funds
through the Company's reserves. When such shares are subsequently
sold or re-issued to the market any consideration received, net of
any directly attributable incremental transaction costs, is
recognised as an increase in equity shareholders' funds through the
share capital account. Shares held in treasury are excluded from
calculations when determining NAV per share.
(e) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, which
include bank overdrafts, are short term, highly liquid investments
that are readily convertible to known amounts of cash, are subject
to insignificant risks of changes in value, and are held for the
purpose of meeting short-term cash commitments rather than for
investment or other purposes.
(f) Investment management fees and finance costs
Investment management fees and finance costs are charged to the
Statement of Comprehensive Income as a revenue item and are accrued
monthly in arrears. Finance costs include interest payable and
direct loan costs. Performance-related fees, if any, are payable
directly by reference to the capital performance of the Company and
are therefore charged to profit or loss in the Statement of
Comprehensive Income as a capital item.
(g) Financial liabilities
Financial liabilities (including bank loans) are classified
according to the substance of the contractual arrangements entered
into. Financial liabilities at fair value through profit or loss
are measured initially at fair value, with transaction costs
recognised in profit or loss in the Statement of Comprehensive
Income.
(h) Taxation
The Company has exempt status under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989 and is charged an annual
exemption fee of GBP1,200 (2016: GBP1,200).
Dividend and interest income received by the Company may be
subject to withholding tax imposed in the country of origin. The
tax charges shown in profit or loss in the Statement of
Comprehensive Income relate to overseas withholding tax on dividend
income.
(i) Operating segments
IFRS 8, 'Operating segments' requires a 'management approach',
under which segment information is presented on the same basis as
that used for internal reporting purposes. The Board, as a whole,
has been determined as constituting the chief operating decision
maker of the Company. The Board has considered the requirements of
the standard and is of the view that the Company is engaged in a
single segment of business, which is investing in a portfolio of
funds and products which give exposure to developing and emerging
market economies. The key measure of performance used by the Board
is the Net Asset Value of the Company (which is calculated under
IFRS). Therefore no reconciliation is required between the measure
of profit or loss used by the Board and that contained in the
financial statements.
(j) Offsetting
Financial assets and liabilities are offset and the net amount
presented in the Statement of Financial Position when, and only
when, the Company has a legal right to set off the recognised
amounts and it intends to either settle on a net basis or to
realise the asset and settle the liability simultaneously.
Income and expenses are only presented on a net basis when
permitted under IFRS.
(k) Structured entities
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
administrative tasks only and the relevant activities are directed
by means of contractual arrangements. A structured entity often has
some or all of the following features or attributes; (a) restricted
activities, (b) a narrow and well-defined objective, such as to
provide investment opportunities for investors by passing on risks
and rewards associated with the assets of the structured entity to
investors, (c) insufficient equity to permit the structured entity
to finance its activities without subordinated financial support
and (d) financing in the form of multiple contractually linked
instruments to investors that create concentrations of credit or
other risks.
The Company holds shares, units or partnership interests in the
funds or investment products held in the Company's portfolio. The
Company does not consider its investments in listed funds to be
structured entities but does consider its investments in unlisted
funds to be investments in structured entities because the voting
rights in such entities are limited to administrative tasks and are
not the dominant factor in deciding who controls those
entities.
Changes in fair value of investments, including structured
entities, are included in profit or loss in the Statement of
Comprehensive Income.
(l) Dividend payable
Final dividends payable to equity shareholders are recognised in
the financial statements when they have been approved by
shareholders and become a liability of the Company. Interim
dividends payable are recognised in the period in which they are
paid.
(m) New standards and interpretations effective in the current
financial year
In the opinion of the directors, there are no new standards that
became effective during the year that had a material impact on the
financial statements.
At the date of approval of these financial statements, the
following standard, which has not been applied in these financial
statements, was in issue but not yet effective:
-- IFRS 9, 'Financial instruments', effective for annual periods
beginning on or after 1 January 2018, specifies how an entity
should classify and measure financial assets and liabilities,
including some hybrid contracts. The standard improves and
simplifies the approach for classification and measurement of
financial assets compared with the requirements of IAS 39. Most of
the requirements in IAS 39 for classification and measurement of
financial liabilities were carried forward unchanged. The standard
applies a consistent approach to classifying financial assets and
replaces the numerous categories of financial assets in IAS 39,
each of which had its own classification criteria.
-- IAS 7 'Statement of Cash Flows', was amended by The
International Accounting Standards Board ('IASB') with the
intention to clarify IAS 7 to improve information provided to users
of financial statements about an entity's financing activities.
They are effective for annual periods beginning on or after 1
January 2017, with earlier application being permitted.
The Board is currently considering the impact of the above
standard. Based on the initial assessment, the standard is not
expected to have a material impact on the Company's financial
statements.
4. INVESTMENT INCOME
2017 2016
GBP'000 GBP'000
Dividends from UK Investments 2,747 1,328
Dividends from Overseas
Investments 753 1,464
--------- ---------
Total dividend income 3,500 2,792
--------- ---------
5. INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------- -------- ---------- --------- -------------
Investment management
fees 2,695 - 2,695 2,107 - 2,107
---------- --------- -------- ---------- --------- -------------
Administration fees 178 - 178 176 - 176
Depositary and custody
service fees 134 - 134 112 - 112
Registration fees 37 - 37 29 - 29
Directors' fees 135 - 135 133 - 133
Auditor's fees:
Audit services 39 - 39 39 - 39
Non-audit services 14 - 14 14 - 14
Marketing fees 179 - 179 61 - 61
Broker fees 40 - 40 40 - 40
Miscellaneous expenses 101 - 101 132 - 132
---------- --------- -------- ---------- --------- -------------
Total other expenses 857 - 857 736 - 736
---------- --------- -------- ---------- --------- -------------
Total expenses 3,552 - 3,552 2,843 - 2,843
---------- --------- -------- ---------- --------- -------------
Investment management fees
Details of the investment management fee and agreement are
provided below.
The Investment Management Agreement is terminable by either
party thereto on not less than six months' written notice at any
time, subject to earlier termination in certain circumstances
including certain breaches or the insolvency of either party.
The Investment Manager is entitled to receive from the Company
for its services as Investment Manager a basic fee and, in certain
circumstances, a performance fee.
-- Basic fee
The Company's basic management fee for the year ended 31 October
2017 was charged at an annualised rate of 1.0% of adjusted market
capitalisation, reduced by the proportion of the Company's net
assets invested in funds which are managed by Aberdeen Standard
Investments ("Aberdeen Funds"). The Investment Management
Agreement, in respect of the year ended 31 October 2017, defines
the "Company's Adjusted Market Capitalisation" as the aggregate
closing mid-market price of the ordinary shares on the last
business day of the month or part of a month for which the basic
fee is being calculated plus the aggregate amount, if any, paid by
the Company in purchasing its own ordinary shares at a discount in
the twelve month period ending on such business day.
On 25 July 2017 the Company announced that with effect from 1
November 2017 (the commencement of the Company's financial year
ending 31 October 2018) the annual management fee will decrease to
an annualised rate of 0.8% of net assets, reduced in the same
manner for any investments in Aberdeen Funds.
The basic fee is payable monthly in arrears (and pro rata for
part of any month during which the investment management agreement
is in force).
-- Performance fee
The Investment Manager may receive, in addition to the basic
fee, a performance fee in respect of each Relevant Period ending 31
October. It is based on the outperformance of NAV per share (before
deducting the performance fee) over the Benchmark NAV per share.
The Benchmark NAV per share is the Base NAV per share for the
Relevant Period, increased or reduced by the percentage, if any, by
which the MSCI Emerging Markets Net Total Return Index in Sterling
terms (Bloomberg ticker: NDUEEGF Index) has increased or reduced
over the Relevant Period. The Base NAV is the NAV at the
commencement of business on the first day of such Relevant
Period.
As at 31 October 2017 the NAV per share was 706.04p (2016:
618.79p). The performance fee is 10% of the outperformance of the
NAV per share over the Benchmark NAV per share, provided that the
NAV per ordinary share has increased since the end of the last
period where a performance fee was payable, i.e. the High Water
Mark of 559.24p per share (2016: 559.24p). The performance fee
calculation is based on figures taken from the audited financial
statements.
The performance fee in respect of a particular Relevant Period
will not exceed 2% of the Company's Net Asset Value at the close of
business on the final Business Day of the Relevant Period to which
such fees relate. There was no performance fee in the current year
(2016: nil).
As explained in the Chairman's Statement, the performance fee
arrangements have been removed with effect from 1 November
2017.
Company Secretary and Administrator fees
Vistra Fund Services (Guernsey) Limited ("Vistra") is appointed
as Administrator and Secretary to the Company. Vistra is appointed
under a contract subject to ninety days' written notice and
receives a fee at a rate of GBP40,000 per annum plus certain
additional fees, as well as the fees payable to the UK
Administration Agent.
UK Administration agent fees
PraxisIFM Fund Services (UK) Limited ("PraxisIFM") is appointed
by Vistra to act as administration agent in the United Kingdom.
PraxisIFM is appointed under a contract subject to not less than
ninety days' notice. The UK Administration Agent receives from the
Administrator a monthly fee equal to one twelfth of 0.1% of Net
Asset Value subject to a maximum fee for the year ended 31 October
2017 of GBP138,360 (2016: GBP135,591) per annum. The maximum fee is
increased annually, in November, by the change in the UK Retail
Price Index (all items) over the preceding 12 months.
Depositary services and custodian fees
Northern Trust (Guernsey) Limited, receives fees for depositary
services calculated at the rate of 2.95 basis points per annum
subject to a minimum annual fee of GBP60,000. Northern Trust
(Guernsey) Limited also receives a fee for custody services
comprising an account fee of GBP2,500 per account per annum,
principal/income split of GBP1,250 per account per annum and single
line items (unit trust) reporting of GBP500 per line per annum. It
also receives an asset based fee equal to between 1.00 basis points
and 40.00 basis points of the value of the assets of the Company.
Transaction based fees are also payable of between GBP10 and GBP125
per transaction. The variable fees are dependent on the countries
in which the individual holdings are registered.
The Company's ongoing charges for the year ended 31 October
2017, calculated using the Association of Investment Companies
methodology were 1.07% (2016: 1.10%).
6. BANK LOAN / FINANCE COSTS
During the year the overdraft facility with the Northern Trust
Company was terminated. In March 2017 the Company entered into a
one year GBP25,000,000 unsecured revolving credit facility with
RBS. At the year end, an amount of GBP25,000,000 was drawn down at
an all-in rate of 0.82838% per annum. This draw down matured on 29
November 2017 and was subsequently rolled over at an all-in rate of
1.06125% per annum maturing on 31 March 2018.
2017 2016
GBP'000 GBP'000
-------- --------
Interest payable 110 31
Facility and arrangement fees
and other charges 45 15
-------- --------
Total finance costs 155 46
-------- --------
At 31 October 2017, interest payable of GBP35,000 (2016: nil)
was accrued in the Statement of Financial Position.
7. EARNINGS PER SHARE
Earnings per share is based on the total comprehensive income
for the year ended 31 October 2017, being a gain of GBP46,726,000
(2016: GBP85,601,000) attributable to the weighted average of
51,346,725(2016: 51,904,033) ordinary shares in issue (excluding
shares held in treasury) in the year ended 31 October 2017.
Supplementary information is provided as follows: revenue per
share is based on the net revenue loss of GBP348,000 (2016:
GBP233,000) and capital earnings per share is based on the net
capital gain of GBP47,074,000 (2016: GBP85,834,000) attributable to
the above ordinary shares.
8. DIVIDENDS PAID
The dividends in respect of the year ended 31 October 2017 are
detailed below:
Pence per Capital Revenue
ordinary reserve reserve
Dividend type Share GBP'000 GBP'000
----------------------------- ------------ --------- ---------
First interim dividend 5.0 2,560 -
Second interim dividend* 5.0 2,560 -
----------------------------- ------------ --------- ---------
*Not included as a liability in the accounts for the year ended
31 October 2017 as it was declared and paid after the year end.
9. SHARE CAPITAL
Ordinary
Ordinary shares with
shares of Allotted, voting rights
1 p nominal issued (excluding
For the year ended 31 value and fully treasury Treasury
October 2017 Authorised GBP'000 paid shares) shares
-------------------------- ------------ ------------- ----------- --------------- ----------
Opening number of shares Unlimited 546 54,618,507 51,748,179 2,870,328
Purchase of own shares - - - (551,450) 551,450
Closing number of shares Unlimited 546 54,618,507 51,196,729 3,421,778
-------------------------- ------------ ------------- ----------- --------------- ----------
Ordinary
Ordinary shares with
shares of Allotted, voting rights
1 p nominal issued (excluding
For the year ended 31 value and fully treasury Treasury
October 2016 Authorised GBP'000 paid shares) shares
-------------------------- ------------ ------------- ----------- --------------- ----------
Opening number of shares Unlimited 546 54,618,507 51,926,229 2,692,278
Purchase of own shares - - - (178,050) 178,050
Closing number of shares Unlimited 546 54,618,507 51,748,179 2,870,328
-------------------------- ------------ ------------- ----------- --------------- ----------
Purchases of own shares
There were 551,450 (2016: 178,050) ordinary shares re-purchased
during the year at an aggregate cost to the Company of GBP2,910,000
(2016: GBP885,000), all of which are held in treasury.
Share capital account
The aggregate balance (including share premium) standing to the
credit of the share capital account at 31 October 2017 was
GBP183,930,000 (2016: GBP186,840,000).
Ordinary shares
Voting rights
Holders of ordinary shares are entitled to attend, speak and
vote at general meetings of the Company. Each ordinary share
(excluding shares in treasury) carries one vote. Treasury shares do
not carry voting rights.
Dividends
The holders of ordinary shares are entitled to such dividend as
maybe declared by the Company from time to time. Shares held in
treasury do not receive dividends.
Capital entitlement
On a winding up, the ordinary shares (excluding treasury shares)
shall rank pari passu for the nominal capital paid up thereon and
in respect of any surplus. Shares held in treasury have no capital
entitlement on a winding up of the Company.
10. NET ASSET VALUE PER SHARE
Net assets per share is based on net assets of GBP361,471,000
(2016: GBP320,215,000) divided by 51,196,729 (2016: 51,748,179)
shares in issue (excluding shares held in treasury) at the
Statement of Financial Position date.
The below table is a reconciliation between the NAV per share
announced on the London Stock Exchange and the NAV per share
disclosed in these Financial Statements.
2017 2016
GBP'millions pence GBP'millions pence
----------------------------------- ------------- ------- ------------- -------
NAV per share as at the financial
year end as published on
1 November 2017 (2016: as
published on 1 November 2016) 361.5 706.18 320.1 618.58
Revaluation adjustments -
late prices - (0.14) 0.1 0.21
NAV per share as disclosed
in these Financial Statements 361.5 706.04 320.2 618.79
----------------------------------- ------------- ------- ------------- -------
11. RELATED PARTY DISCLOSURES
Investment Manager
Investment management fees payable are shown in profit or loss
in the Statement of Comprehensive Income. As at 31 October 2017, no
performance fee accrual has been made (2016: GBPnil).
At 31 October 2017, investment management fees of GBP255,000
(2016: GBP213,025) were accrued in the statement of financial
position. Total investment management fees for the year were
GBP2,694,944 (2016: GBP2,107,317).
Funds held at 31 October 2017 which are managed by the Standard
Life Aberdeen plc group
As at 31 October 2017, the Company held investments in Aberdeen
Asian Smaller Companies Investment Trust PLC, Aberdeen Latin
American Equity Fund Inc and Edinburgh Dragon Trust PLC. The
valuation of these holdings at 31 October 2017 totalled
GBP25,722,000.
Directors
Total fees for the Directors in the year ended 31 October 2017
were GBP135,100 (2016: GBP133,100).
12. ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the
Company's registered office on 12 April 2018.
13. FINANCIAL INFORMATION
The Annual Report was approved by the Board of directors on 19
February 2018. The information in this announcement has been
extracted from the annual report on which the Company's auditors
have given an unqualified report. The annual report will be posted
to shareholders and will be made available on the Investment
Manager's website at aberdeenemergingmarkets.co.uk. It will also be
available from the registered office of Company and the UK
Administration Agent.
This announcement contains regulated information under the
Disclosure Guidance and Transparency Rules of the FCA.
A copy of the annual report will be submitted to the National
Storage Mechanism and will shortly be available at:
http://www.morningstar.co.uk/uk/NSM
Registered office
11 New Street
St Peter Port
Guernsey GY1 2PF
Enquiries:
Aberdeen Fund Managers Limited (Investment Manager to Aberdeen
Emerging Markets Investment Company Limited)
Andrew Lister / Bernard Moody Tel: +44 (0)20 7618 1440
Stockdale Securities Limited (Financial adviser and
stockbroker)
Robert Finlay Tel: +44 (0)20 7601 6115
Vistra Fund Services (Guernsey) Limited (Company Secretary)
Lia Rihoy Tel: +44 (0)1481 754147
PraxisIFM Fund Services (UK) Limited (UK Administration
Agent)
Anthony Lee Tel: +44 (0)20 7653 9690
Ordinary Shares - Listing Category: Premium - Equity
Closed-ended Investment Funds
19 February 2018
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFMFMUFASELE
(END) Dow Jones Newswires
February 19, 2018 12:09 ET (17:09 GMT)
Abrdn China Investment (LSE:ACIC)
Historical Stock Chart
From Apr 2024 to May 2024
Abrdn China Investment (LSE:ACIC)
Historical Stock Chart
From May 2023 to May 2024